Kingfisher shares rose near to their daily limit of 5 percent after a local newspaper reported that Etihad was close to buying a 48 percent stake in the carrier, controlled by its flamboyant chairman Vijay Mallya, for a little over 30 billion rupees.

"We would like to clarify that the company is in discussion with various investors, including Etihad Airways, for equity investments in the company," Kingfisher said in a statement.

It gave no further details as to the possible size of the stake or the price anyone would pay. Etihad Airways declined comment.

A formal announcement of a deal could come around December 18, the birthday of Mallya, according to the Mumbai Mirror, a tabloid known mainly for coverage of local news. It did not say how it got the information.

Kingfisher has been trying for more than a year to find an investor, with no foreign carrier publicly expressing an interest in taking a stake.

Battling stiff competition and high operating costs, Indian carriers have been in talks to sell minority stakes to foreign airlines. Etihad has been eyeing a stake in Jet Airways (JET.NS), India's largest airline by total passengers carried, a source said recently.

"I do not think any foreign airline would be interested in Kingfisher unless promoters infuse money into the company, at least 40-50 billion rupees," said Rashesh Shah, an aviation analyst with ICICI Securities, who has suspended coverage of the stock.

Industry expert Rajan Mehra, the India head of U.S.-based private jet operator Universal Aviation, said an Etihad investment in Kingfisher was possible.

But he said the reported price sounded high and Etihad would not want to take on all of Kingfisher's debt.

Its total debt is estimated at roughly $2.5 billion, according to the Centre for Asia Pacific Aviation consultancy.

Kingfisher's market value is about $231 million.

"They can get an airline which is in a mess, which can be bought at a reasonable price, and which gives them access to the captive domestic market," said Mehra, who previously headed Qatar Airways' India operations.

Abu Dhabi-based Etihad would initially buy a 30 percent Kingfisher stake in December and a further 18 percent by next August, the newspaper said.

Kingfisher, once India's second-largest airline by domestic market share, has struggled to pay staff for much of this year and has not flown since early October due to staff protests and safety concerns.

Kingfisher's often-volatile shares closed up 4.7 percent, effectively at their 5 percent daily limit, at 15.60 rupees on Tuesday. They have more than doubled since hitting an all-time low of 7.05 rupees in August. (Additional reporting by Stanley Carvalho in Abu Dhabi; Editing by Matthew Tostevin)

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